Stocks ended the year on an up note, capping the fifth straight year of phenomenal returns for a select few, large stocks, that in turn pulled overall market indexes to new highs.

The year's star was the tech-laden Nasdaq composite index, which gained 85.6 percent for the year, a record annual return for any major stock index. The Dow Jones industrial average also performed smartly, rising 25.2 percent in 1999, and the Standard & Poor's 500-stock index rose 19.5 percent.

Yesterday, the Dow closed at 11,497.12, up 44.26 points, and the S&P at 1469.25, up 4.78 points.

The huge index gains in 1999 mask a deep divergence in the performance of individual stocks. The average stock in the S&P 500 rose only about 10 percent. But shares of Qualcomm Inc., a wireless communications company, soared more than 2,600 percent last year.

The 30 stocks in the venerable Dow had divergent results, too: Alcoa rose 125 percent while Philip Morris, the worst-performing Dow stock, fell 53 percent under the weight of tobacco litigation.

The breathtaking performance of Internet-related and other technology stocks is worrisome to many market experts.

"I think this is the kind of market euphoria we will be telling our grandchildren about. A time when speculative companies that have never earned a penny in profit can create instant billionaires," said James J. Angel, associate professor of finance at Georgetown University.

The Nasdaq closed yesterday at 4069.31, up 32.44 for the day. Earlier this week it broke the 4,000 mark, less than two months after rocketing through the 3,000 level. No major index of U.S. stocks has ever risen so quickly. But much of the gain has been in new technology stocks, and the values of those stocks have galloped far ahead of their current earnings.

Financial experts from Federal Reserve Chairman Alan Greenspan to Lynn Turner, chief accountant of the Securities and Exchange Commission, to Barton Biggs, the outspoken chief global strategist for Morgan Stanley Dean Witter, have publicly speculated about past bubbles and their lessons for the current situation.

In a recent speech, Turner quoted from newspaper articles. "Playing the stock market has become a major American pastime," he read. Other articles talked of stock markets creating instant wealth and a new era heralded by a new technology. But the articles Turner was reading from were from 1929 and the new technology was radio.

Meanwhile Biggs compares the current market, in which a narrow group of stocks is soaring while many others are performing poorly, to the 1973-74 period. "Just as today, there were two markets, and then suddenly the music stopped and the one that had levitated converged with the one that had crashed," Biggs wrote in a recent report to clients.

And in trying to determine how to deal with the stock market's exuberance, the Fed has extensively studied Japan's experience with the bursting of its stock market bubble in the early 1990s.

During the 1980s, the Tokyo stock market soared 500 percent. A wide range of Tokyo analysts at the time explained that, although the stock prices looked high, they really weren't. That's because there was a new economic reality. Companies shouldn't be valued just on their earnings or revenue, but investors should also factor in the soaring values of prime real estate that many of the biggest companies owned. But when the stock market crashed, property values eventually collapsed, and so did banks and the economy.

Fed officials have recently focused on Japan's experience of dealing with decimated asset values in an economy that had both low inflation and low interest rates.

"If you look at other bubbles, they are all different but they have many common features. You have a wave of euphoria in which there is some plausible story as to why the good times are finally here. In 1929, the nation was on the edge of a brave new world of technology," said Angel.

"The automobile was bringing an unprecedented amount of freedom for individuals. Individuals were no longer shackled by geography. Now it's the Internet that's bringing freedom. Individuals are no longer shackled by information barriers."

In the 1920s, it was Radio Corp. of America, not a dot-com company, that investors were grabbing, driving up the price during a glorious seven-year bull market, just to see the stock collapse in the 1930s.

But Bernard Yeung, research director of the University of Michigan's William Davidson Institute, an economic think tank, said there's no comparison between now and 1929 because the amount of information available today about publicly traded companies fundamentally alters investor behavior.

Donald L. Luskin, chief executive of the Metamarkets.com, a Web site for active online investors, and former chief executive of Barclays Global Mutual Funds, insists today's market is not a bubble.

"What we are seeing is a major shift in the nature of our economy," said Luskin.

"Investors are betting that a whole cluster of post-Cold War developments are going to radically transform the growth path the world is on."

That includes not just Internet technology, but also changes in financial engineering, employment policy, consumer behavior and business methods, said Luskin.

"It's nothing less than history's greatest transfer of wealth from the dying corpse of the Old Economy to the healthy young body of the New," Luskin said in a recent posting on MetaMarkets.com.

In any case, Greenspan said in congressional testimony this summer that bubbles "generally are perceptible only after the fact. To spot a bubble in advance requires a judgment that hundreds of thousands of informed investors have it all wrong."

Technology Ruled

It was another year of outsized gains in the U.S. stock markets, especially for the technology-packed Nasdaq composite index, which enjoyed a record one-year increase . . .Index of change, Dec. 31, 1998 = 100

Since Dec. 31, 1998

Nasdaq:

Up 85.6%

Dow:

Up 25.2%

S&P 500:

Up 19.5%

. . . but bond market investors had little to celebrate, as interest rates pushed steadily higher . . .

Yields on Treasury securities

NOTE: Maturity of security

. . . and it's clear the tech stock boom isn't a short-term wonder, as the eight best-performing mutual funds of the decade were all technology-related.

Best-performing funds, Dec. 31, 1989, to Dec. 30, 1999

Fidelity Select Electronics2,272%

Fidelity Select Computers1,970%

Fidelity Select Technology1,890%

Invesco Technology (II)1,579%

Fidelity Select Software1,418%

T. Rowe Price Science & Technology1,285%

Alliance Technology (A)1,265%

Seligman Communications (A)1,258%

RS Funds / Emerging Growth1,113%

Van Kampen Emerging Growth (A)1,055%

Worst-performing funds, Dec. 31, 1989, to Dec. 30, 1999

U.S. Global / Gold Shares -- 91.0%

Monterey / OCM Gold -- 73.5%

Midas Investors -- 71.4%

DFA Group / Japanese Small Company -- 65.0%

Comstock Cap Value (A) -- 61.6%

Invesco Gold -- 59.4%

Pimco / Precious Metals (C) -- 56.6%

Van Eck / International Gold (A) -- 54.3%

Van Eck / Gold, Resources -- 48.3%

American Century / Global Gold (Investor) -- 47.9%

SOURCES: Bloomberg News, Lipper Analytical